Jim Rickards

The debt ceiling issue is a very serious issue. The U.S. is not going to default on its debt. There is really nothing more important.

Jim states he was disappointed with Secretary of the Treasury Jack Lew‘s testimony this morning. There have been great Secretaries of the Treasury in the past, but Lew comes off as a political hack. Lew said that we have to make a choice between paying the debt or paying Social Security.

That’s a false choice.

They can pay both. There are plenty of things they can cut out.

With the business about the computers Lew ignores the fact that the data entry for the computers comes from human beings.

So the President can just issue an executive order. There are tens of thousands of contracting officers across the country. They could say, “Hold certain things up for 30 days.”. For example, Lougheed doesn’t get an installment payment on an aircraft carrier.

There’s plenty of things they can do. They could auction three hundred tonnes of gold a week, and that would be enough to fund the government for six months.

Jim isn’t saying that those examples are good ideas, he’s just saying that there are plenty of things the government can do, so the deadline is phony.

The House has three trump cards – Sequester. Shut down. Debt ceiling.

Boehner never said we’d go up against the debt ceiling. They drew a line in the sand on the other two, and it was the President who made an issue out of it.

JACK LEW

Lew comes off as a political operative. There are certain cabinet departments, for example Department of Defense, Secretary of State, and Secretary of the Treasury, who should hold themselves to a higher standard.

Lew comes off as a political operative and not someone who is looking after the dollar, or the credibility of the United States government.

GOLD

They could roll the debt over with a longer maturity to improve their cash flow.

The IMF sold 400 tonnes of gold with no market impact.

You don’t sell the gold on EBay. It can be done by private arrangement. You can call the Chinese.

DEBT CEILING

They will pass a clean debt ceiling in exchange for a promise to negotiate. There are some conditions but they won’t be in the bill.

They couldn’t do this in August. The grand bargain is off the table. The mini bargain… the President has said numerous times he won’t agree to anything unless there’s some tax increases. The Republicans want entitlement cuts and the Democrats in Congress won’t support that.

They’re going to talk about it which is encouraging, and that’s why the market is up. But the prospects of getting anything done are still pretty close to zero.

Jim says he doesn’t know if Jack Lew has read any government contracts but they’re pretty complicated. They have grace clauses and they have force majeure clauses. They have all kinds of conditions. The President can instruct the contracting officers to save what they can.

Jim consults with the government and is a government contractor. When the order is put in he is paid on time, but he deals with his contracting officer all the time. They say, “You did this wrong. You did that wrong.”. So there’s plenty of leeway and Lew doesn’t want to talk about it.

Prioritization could last indefinitely if the government were to pursue some of these other measures.

Jim does not think selling gold is a good idea. He thinks it’s a bad idea. His example of selling gold is just pointing out that it could be done, it could be done commercially, and the government could be funded for six months.

If the White House wanted to have an impact, instead of a phony red line on October 17th, why not say, “You know what? We don’t know.”.

Here’s the problem: They scaremongered a sequester and nothing happened. They scaremongered continuing resolution and nothing happened. The President drew a red line around Syria and Putin walked all over it.

So they have a credibility problem right now.

The market didn’t crash and 80% of the government is working. TSA is on the job, FBI is on the job, and critical functions are on the job. The workers who are off the job are going to get back pay, so it’s sort of a paid vacation for them.

U.S. GOING BROKE

What about the taxpayers who are footing the bill who can’t pay their rent?

This is not free. Money is not free. It comes from the taxpayers, and Republicans are trying to cut spending.

We are on the road to going broke. That’s just a fact.

David Walker has done excellent work on this. We all know we are going broke and every day that goes by without a solution is one day closer.

INFLATION

There are different ways of going broke. They could print the money and create inflation, and then say, “Hey China, here’s your trillion dollars. Good luck buying a loaf of bread.”.

Inflation is the other solution. It’s just default by another name.

The problem with inflation is that you have winners and losers. The winners are the banks and the speculators. The losers are the people with pensions, insurance policies, annuities, the savers and retirees. They’re the losers in this game.